4.1. ERMUSR 10-11-2011 - Laserfiche WebLink

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Via a-mail September 27, 2011 Mr. Troy Adams, P.E. Utilities Director Elk River Municipal Utilities P.O. Box 430 Elk River, MN 55330-0430 Subject: Power Supply Analysis Dear Mr. Adams: Thank you for taking the time to meet with Rich Macke and me on Tuesday, September 20, 2011. We aze confident that Power System Engineering, Inc. (PSE) has the necessary skill sets to provide strategic analysis to assist Elk River Municipal Utilities (ERMU) in making a power supply decision. There aze many changes occurring in the electric industry at this time that complicate the process of selecting a power supply resource. There aze also considerations as the type of organization that is providing ERMU with power supply resources. As one example, municipal and cooperative suppliers have greater alignment to ERMU in terms of not having to satisfy both investors and customers at the same time. Our understanding of the situation is that ERMU has been given notice on the power supply contract from Connexus Energy that will terminate in September 2018. ERMU has also been participating in a power supply evaluation with Central Minnesota Municipal Power Agency (CMMPA) that is expected to include an adequate resource mix for the long-teen power supply needs. An eazly decision is needed whether to continue with this approach, or evaluate other options, with at least four other entities being identified as possible power supply providers at this point. PSE has extensive experience in Power Supply analysis with municipal entities, including with Escanaba, Norway, Crystal Falls, and Gladstone, Michigan. Work in the 2003-2005 timeframe focused on evaluating the power supply options for five municipals and two small cooperatives, including purchase power options, and also considering aself--build alternative. Work with Escanaba, Michigan has involved a wide range of power supply evaluations, including demonstrating the economics of self-generation compared to market purchases, market-based proposals vs. formula based proposals, impacts on the MISO mazket pricing from the supply node to the purchasing party's load node on power supply alternatives (typically called basis risk), evaluation of a fix for float financial hedging transaction, and negotiating contracts related to the power supply issues. PSE also assisted Great River Energy (GRE) members in evaluating the economics of purchasing 10 percent of their energy from an outside resource, and thus 2